Wednesday, July 08, 2009

A Look at a Transition Turnaround

Here we see the transition bottoming pattern mentioned in the Twitter comments intraday. The high volume decline was followed by a nice bounce and then a lower price low in ES that occurred on lower volume (and lower volume at bid) and non-confirmations from NASDAQ and Russell indexes. Those were followed by a significant surge in buying, taking us back above the day's VWAP. It's a key pattern to watch for on different time frames..

My question is how to account for the variations in intra-day volume. the second test of the lows was accompanied by lower volume but it was a mid-day trade volume being compared to morning (generally higher) trade volume. I know you've mentioned your indicator that tracks average volume at specific time intervals during the day. Other than that, do you have any rules of thumb for spotting genuinely lower volume that takes into account these variations in intra-day volume?

I use a custom coded indicator for NinjaTrader also. Almost of my main discretionary setups right now are based on the patterns outlined here are other posts - i.e. market reversals (both long and short).

I think the trick is a relative volume spike and also looking at the volume traded at bid and ask. For me, I typically look for volume spikes at price high/low, relative to surrounding bars and then looking for confirmation or divergence based on the bid/ask volume numbers.

About Me

Author of The Psychology of Trading (Wiley, 2003), Enhancing Trader Performance (Wiley, 2006), and The Daily Trading Coach (Wiley, 2009) with an interest in using historical patterns in markets to find a trading edge. I am also interested in performance enhancement among traders, drawing upon research from expert performers in various fields. I took a leave from blogging starting May, 2010 due to my role at a global macro hedge fund. Blogging resumed in February, 2014, along with regular posting to Twitter and StockTwits (@steenbab).